Will the Employment Rights Bill end the “unscrupulous practice” of fire and rehire?

Presently if a contract variation is not accepted by an employee (following consultation), an employer can serve notice to terminate on the existing terms, offering to re-engage (rehire) the employee on the amended terms.  This is usually where there is a sound business reason such as addressing harmonisation or economic changes.

The proposal in the Bill is to remove this practice, and instead make it automatically unfair to dismiss an employee on their current terms where they refuse to accept a contract variation.

An employer could try to justify the dismissal by arguing that the reason for the change is to prevent or reduce the effect of financial difficulties it may be experiencing.  Those financial difficulties would have to affect (or could likely affect) its ability to carry on running the business; meaning financial challenges which threaten the business’ viability, so the variation was unavoidable i.e. to prevent insolvency.

With the proposed reform being an automatic unfair dismissal, once it has been established that the reason for dismissal is the contract variation refusal, no further examination is needed. Employers would not be able to rely on the existing defences available in unfair dismissal to show that there was (a) a fair reason to dismiss and (b) it was reasonable in the circumstances to dismiss.

Given the challenge to amending employment contracts without the employee’s consent, employers will have to use the consultation process to find a variation which is acceptable.  It is likely that employers will increasingly be seeking to use well drafted contract variation clauses to make amendments.

Furthermore, given the litigation risk, employers may need to plan ahead and assess the timescales needed to address matters of contract variations if there are business changes on the horizon. Last minute, urgent changes are going to be very difficult to deal with even if they fall into the category of financial difficulties affecting the viability of the business.

Presently the duty to collectively consult (minimum consultation periods) is triggered where an employer is proposing to dismiss 20 or more employees in a single ‘establishment’ (e.g. a branch office) over a 90 day or less period.  This includes fire and rehire situations if consultation on contract variations could result in dismissals. The proposal is to remove the ‘establishment’ aspect of the test.  This means that the duty will apply taking into account numbers of employees affected across an entire business.  The aim is to provide clarity to those employees who may have been unclear on how the term ‘establishment’ would apply.

If there is no collective consultation process, affected employees can pursue an Employment Tribunal claim.  The Tribunal can make a declaration and order the employer to pay a ‘Protective Award’ of up to 90 days’ pay to each affected employee.  The proposed reforms are to either double to the award to 180 days’ pay, or to remove the cap entirely.

The proposal to require numbers of dismissals to be calculated across an entire business will both help and hinder businesses. Under existing law, there is often uncertainty when identifying the single establishment and organisations have historically used this ambiguity to avoid an expensive additional collective process. Removing that uncertainty will provide clarity for all parties.

On the other hand, it will require businesses to take a wider view of their restructure plans. The question of selection from a broader pool of employees will likely raise more debate over who should be included from other sites.

The proposals for changes to the Protective Award could add a costly additional risk to employers who are looking to shortcut legal processes. If employers are considering pushing through change by offering settlement agreements to buy off the problem, the Bill will give greater leverage to employees and trade unions to negotiate a better deal.

The Government is also seeking views on whether interim relief should be made available in the above scenarios.  Interim relief is a claim to the Tribunal at the early stage of litigation claiming that they have a good claim for unfair dismissal and so pending the final hearing, should be kept in their job, or at least be paid compensation in the meantime.

The Government’s view is that the majority of employers comply with the law.  Their intention is to use remedies such as interim relief as a disincentive for those employers wishing to push past the boundaries of lawful activity.  It is easy to see how contract changes for a large group of employees could mean significant financial and legal risk for an employer, with employees potentially being protected from detriment whilst the case is being litigated.

As with any proposed legislation, the Bill is not the final version. As the Bill progresses through both Houses of Parliament, it will be subject to various amendments, which will hopefully add further clarity as to how these protections will work in practice. In addition, it is likely we can expect secondary legislation and Codes of Practice to be forthcoming.

With much of these changes not anticipated until 2026, there is little from a practical standpoint that employers can do to prepare, aside from keeping up to date on the changes as and when they arise.

On Thursday 28 November, we will be hosting a webinar to discuss the implications of the Bill and how employers can begin to prepare for the upcoming changes.